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This summer PERC welcomed 14 entrepreneurs from all over the world for its 13th annual Enviropreneur Institute. One of our enviropreneurs, David Hoffman, is an avid outdoorsman with a particular interest in air quality. He is developing a company devoted to measuring air quality based on a network of optical sensors. He holds a doctorate from Montana State University, where he focused on the design, construction, and deployment of a high spectral resolution LIDAR for atmospheric aerosol observation.

DAVID HOFFMAN

Q: Could you describe the technology you are developing?

A: I am currently developing technology to measure air quality based on the intensity of sunlight observed by a network of LED-based sensors on the ground. This network will provide a map of air quality. Such a map could be used by people to make decisions based on the health impact of the air they will be breathing at different locations on any given day.

Q: How do these sensors measure air quality?

A: The sensors measure air quality by recording the intensity of sunlight and comparing the observed intensity to the intensity that should be observed if the air is clean. The incident solar radiation is observed at multiple wavelengths, which allows for the determination of the size distribution of particulate matter in the air, as well as the detection of certain trace gasses. The particulate matter and trace gas information can be used to make inferences about the quality of the air.

Q: What’s the status of the project?

A: At the moment, I am refining and testing the technology, developing a business plan, and seeking potential investors.

Q: What challenges lie ahead in creating market incentives for measuring air quality?

A: People are interested in the quality of the air they breathe because it has a significant impact on their health and quality of life. Many large industrial and mining facilities are under pressure (from the EPA, concerned citizens, and other groups) to curb their emissions of harmful chemicals and particulate matter. I am tailoring my product (spatial mapping of air quality) to these two markets. I believe that a significant incentive already exists to better understand and monitor air quality.

Q: How do you see this new technology changing the way people respond to air quality?

A: I see individuals making daily decisions based on their new-found knowledge of air quality. For example, they may choose to recreate in a location where the air is better, rather than risking their health by recreating in a location with dangerously bad air. People may choose to keep their kids indoors if the air at their location becomes dangerously polluted. Additionally, large industrial sites will be able to better keep tabs on their emissions, which will help them to comply with existing clean-air standards.

Q: What did you take away from PERC’s Enviropreneur Institute that will help you develop your project?

A: The Enviropreneur Institute provided me with the tools I need to get an environmentally friendly business off the ground. I learned how to use market forces to solve environmental problems such as a lack of adequate air quality information. The mentoring provided by the Institute faculty and the other enviropreneurs has proven invaluable in all aspects of my project.

The President’s Climate Action Plan argues that “(c)limate change represents one of our [sic] greatest challenges of our time, but it is a challenge uniquely suited to America’s strengths.”

If our challenge is indeed “change,” we might do better by turning to America’s strength in financial services rather than its relative inexperience in centrally directing resources. According to David Riker, founder of the New York-based Storm Exchange Inc., when “volatility is the issue, nothing is better than financial markets at valuing the risk and spreading it out.” And America has long been a leader in offering productive financial services.

Competitive insurance markets, for example, can diversify a household’s exposure to variations in climate while economically encouraging people to move away from the possibility of too much harm. On important margins like these, insurance can help us adapt to a climate that may, as the Nobel Prize-winning physicist Robert Laughlin argues, express a mind of its own.

(Unfortunately, people in the insurance sector, and indeed the broader financial sector as a whole, are also tempted to side-step unyielding economic laws to chase the lures of crony capitalism. Chicago economists Raghu Rajan and Luigi Zingales and Hoover Institution’s Russ Roberts offer careful yet accessible explanations of this interaction between politics and economics.)

Insurance markets can also encourage innovations that fundamentally reduce the cost of living with climate variability, whether or not it is increasing. For example, WeatherFlow Inc. blanketed hurricane prone areas of the United States with durable private weather stations, and now collaborates with Risk Management Solutions (RMS) to turn data from these stations into a new type of catastrophe or “cat” bond.

Unlike conventional insurance policies, which can require time-consuming and sometimes contentious damage assessments before offering relief, these bonds make payments as soon as wind velocity reaches a mutually agreed upon and easily verified speed. According to WeatherFlow and RMS, the “insured is paid days after the event rather than waiting for months to settle a claim.”

Other financial markets can offer similar benefits. Temperature is not the only dimension on which climate can vary. Changes in when, where, and how much rain falls, for example, are also important. Chicago’s CME Group offers help to businesses in the agricultural, travel, and other sectors that might benefit from trading their exposures to such variance. It does so by creating a type of dating-service that initiates relationships with counterparties who are less directly exposed to particular perils and thus better able to diversify against associated variances. The resulting efficiency gains benefit the market maker (that is, CME Group) as well as both parties to the exchange.

Recently addressing a Georgetown University audience, President Obama noted that “how we answer [the threat of climate change] will have a profound impact on the world we leave behind not just to you but to your children and your grandchildren.” The administration’s second-term agenda initiates a number of new precautionary measures to guard against catastrophe in that future world.

Instead of opening doors to anonymous opportunity, these measures may be shutting them for all but a favored few. Competitive markets, not centralized authorities, have a much better track record of increasing economic wealth while improving environmental quality.

Top-down policies in the name of climate insurance can compromise both. Financial regulations that exact real costs from opportunists can do better than recent “reforms” that may be stoking the flames of crony capitalism and discouraging responsible money from finding durable environmental solutions.

It’s a conservation debate that’s as fiery and emotive as they get: how does South Africa, which is home to 90% of Africa's rhinos, go about protecting them from a poaching pandemic that’s likely to claim over a thousand victims before the year is done (and could eventually devastate rhino populations)? That debate really intensified this week when the South African government gave its strongest indication yet of the route it plans to take: the country’s environment minister announced that South Africa would back "the establishment of a well-regulated international trade" in rhino horn and seek permission for a one-off sale of stockpiles worth around $1-billion.

With the news setting off heated discussion online, we spoke to one expert who believes well-regulated trade is the right answer. Conservation economist Michael 't Sas-Rolfes, who has written extensively about the market factors driving the poaching crisis and the ‘economics’ of rhino conservation, answers a few of our questions on this controversial topic.

Q: With a background in business and economics, you haven’t really followed the ‘conventional’ path into the area of wildlife conservation. How do you think those skills help you to see the poaching crisis from a different angle?

A: I think they are not only helpful, but essential. The poaching crisis – and indeed many other conservation problems – is driven by human behaviour. To solve such problems we need to come to grips with the incentives driving that behaviour and the systems that create those incentives. So we need to have an understanding of social sciences more than biological sciences: that includes economics, psychology, sociology and politics! Most importantly, we need to understand how markets work.

Q: For those of us who don’t speak ‘economese’, it can be tricky to understand the poaching problem and the rhino-horn market in rigorous economic terms. Is there a simple way to break things down?

A: Simply put, the way things are set up right now, poachers and illegal traders have much stronger incentives – and more money at their disposal – to kill rhinos than individual rhino owners and custodians have to protect them. This is because Asian demand for rhino horn is real and not expected to decline in the near future, and – most importantly – Asian suppliers are expecting rhino horn to become commercially extinct and therefore increasingly valuable over time. We are facing some very powerful market forces here.

Q: Do you think more people would see legalization of the rhino horn trade as a viable option if they were able to understand the economic forces that drive the horn market?

A: Most definitely!

Q: The widely accepted timeline seems to be that the poaching crisis was sparked around 2007 thanks to rising demand in Vietnam and the emergence of the infamous cancer-curing myth. But you believe the timeline is actually quite different…

A: Yes, I think that is a somewhat misguided interpretation of what actually happened (as seen through a Western lens of understanding). Rhino horn has been a valued commodity in Asia for thousands of years, for both ornamental and medicinal purposes, mostly in elite circles. An essential part of the horn’s current value is its scarcity. As a medicine, it is – and has always been – used to treat a wide range of conditions related to inflammation and toxicity in the body. In some circles it is considered the ultimate medicine to treat serious (and not so serious) cases – i.e. it is the Rolls Royce of traditional Chinese medicine. Evidence suggests that demand is rising in both Vietnam and parts of China along with increased affluence (not just for cancer treatment, but for all sorts of medicinal and ornamental uses, but with the underlying prestige factor). The poaching crisis was sparked when we responded to that increasing demand in exactly the wrong way: by restricting the supply. Basic economics tells us that if you reduce the supply in the face of increasing demand, market prices will rise. If prices rise, so do the potential rewards for poachers and illegal traders.

Q: Many anti-poaching campaigns are aiming to ‘reduce’ Asian demand for rhino horn through awareness and education. Can ‘reeducation’ work?

A: I am skeptical that this approach can deliver results fast enough to bring poaching down to sustainable levels in the short and even medium term. We are dealing with a product market based on very deeply held cultural values and beliefs. Those advocating demand reduction are unable to tell us how quickly this can work and – most importantly – how much it will cost to be effective and who is going to pay for it.

Q: Aside from awareness campaigns, you argue that enhanced security (and what you call after-the-fact enforcement) will not be enough to halt rampant poaching. Why?

A: Poachers and other criminals have very short time horizons. If you offer them a huge reward now with a fairly low probability of being caught and punished at some time in the vague future, they will typically ignore that potential cost. And what is the point of prosecuting them a year or two later anyway? By then a whole bunch of new poachers and criminals are already in the game. To stop poaching you need to convince poachers that they are very unlikely to succeed in their initial poaching attempt – that it simply won’t be worth it in the first place. The only way you can do that is by lowering the value of their potential initial take (dehorning rhinos and/or reducing the price of horn) and – most critically – having such effective security on the ground that the rhinos are almost impossible to get to.

Q: What would you say to those who feel that farming rhinos for their horns would effectively reduce one of Africa’s most iconic wild animals to the status of livestock?

A: I fear we are faced with a stark choice: a lower risk option of white rhino ‘farming’ as a buffer to wild populations of all species – or the continued severe threat to all species and likely reduction (and even extinction) of almost all wild rhino populations.

Q: Even if trade is legalised and farming rhinos becomes a reality, is it possible that some consumers may still seek out horns sourced from “wild” (poached) rhinos rather than their “farmed” counterparts (the same way wild-caught salmon is preferred over the farmed variety)?

A: I consider this less likely with rhinos as we are not talking about artificial and intensive feed-lot farming, but rather ranching – periodically removing the horn from free-ranging rhinos (that is by far the most cost-effective way to produce horn). Conscious meat consumers avoid grain-fed feed-lot beef but are happy to eat grass-fed free range beef, even if the cattle in question are not truly ‘wild’. I would not expect rhinos to be much different. If you offer consumers the choice between genuine certified legal free-range rhino horn and illegal horn of unknown origin that may be a fake, I suspect few consumers would pay a premium for the latter. If anything, most would probably be willing to pay far less.

Q: What about those who argue that South Africa’s government agencies are too corrupt and ineffective to properly monitor and manage legal trade in rhino horn?

A: You could argue the same for controlling the illegal trade. The argument doesn’t make any sense. With legal trade, the owners and custodians would be getting the money – lots of it – that is now all being taken by criminals. With legal trade the owners and custodians would be able to afford better security and have a much stronger incentive to protect and breed up their rhinos.

Q: Even if South Africa decides to move forward on the road to legalisation, legal trade hinges on approval from CITES – which can only be granted at the next CITES conference in 2016. What are the logistics of that approval process and who would be involved?

A: The logistics are intimidating. South Africa will have to secure the buy-in of key consumer countries, which will need to amend their laws to allow for this. The mechanism is also critical – there are many wrong ways to set up legal trade and only one right one. There is still a lot of work to be done on this and everyone needs to be involved, from government agencies to private agents and NGOs.

Q: Can trade be legalised in time to save Africa’s rhinos?

A: I regret that we are likely to lose a lot more rhinos in the next few years, whatever happens. With a properly established legal trade we have a better chance of navigating our way out of this mess and securing the future of most rhinos into the longer term. Without legal trade I fear rhino numbers will be severely reduced. I think extinction is unlikely, but the longer-term prognosis for rhinos will not be as good.

This article originally appeared at Earth Touch. Michael 't Sas-Rolfes is a research fellow at PERC.

I grew up spending the summers at our old family cabin in the middle of sage grouse paradise. I remember thinking the large bird looked like a pharaoh with its bold black neck markings resembling a long goatee. In a sense, the greater sage-grouse is second in line to rule the sagebrush dynasty. But ranchers and energy interests aren’t interested in stepping aside.

In 2010, the U.S. Fish and Wildlife Service gave the sage grouse a designation of “warranted but precluded,” meaning the species qualifies for protection under the Endangered Species Act, but that higher priority species come first. The bright side of this outcome is that it gives groups across the west time to work together to prevent the need for listing.

Biologists want to protect the sage grouse, but without starting a 21st century range war over it. So they’ve undertaken a grand experiment in the American West, to keep the grouse happy, as well as cattle ranchers and the energy industry.

The experiment works like this:

The Sage Grouse Initiative, which includes the Nature Conservancy, state wildlife agencies, and universities, pays ranchers not to develop land—700 ranchers have signed up so far.

SGI then works with private land owners to remove fences and cut down invasive trees that both push out sagebrush and give hawks and other predators an advantage over the sage grouse.

The Fish and Wildlife Service issued a report ensuring that the practices of SGI will help restore the sage grouse. Landowners who follow SGI guidelines will be given assurances that they will not be subject to additional restrictions if the species should be listed.

It is too early to tell the outcome of this experiment, but a similar model, “candidate conservation banking,” shows promise for the rare eastern gopher tortoise. In short, a system of positive incentives to motivate environmental stewardship prior to listing under the Endangered Species Act could enhance the nation’s framework for species conservation. It could also remove the perverse incentives landowners often face when threatened species occupy their land.

The spotted owl battle between the timber industry, government, and environmentalists in the 1990s was expensive and drawn-out. As David Naugle says on NPR, the stakes are high here as well—rights to ranching, farming, and oil and gas reserves. “At risk is our nation’s energy security and the ability to provide food on these Western lands,” he says. The Sage Grouse Initiative is one shot at avoiding a battle.

The EPA and some European countries are on the warpath against coal. Technology exists to capture most of its emissions, so coal burning is not the dirty process it was decades ago. But coal is the main CO2 culprit in the climate change (aka global warming) debate. Some have no doubts: coal must be eliminated.

But it is not going away. The sober folks at the Energy Information Administration project coal usage will remain much the same in the decades to come, as will use of other fossil fuels.

New Source Performance Standards adopted by EPA mean no new coal-fueled utility plants will be built in the United States, and existing plants are being shuttered as compliance with rules that apply to them grow ever more costly.

It is likely a stroke of dumb luck from the EPA's perspective that the natural-gas boom, which the federal government has done nothing to help, came along in time for gas to be there to replace some coal usage in U.S. electricity generation. We are fortunate to have the natural-gas bonanza, but it will not change the world energy landscape.

It is hubris to think that what is done in the United States is the same as in the rest of the world. We are a declining fraction of world energy use. We shut down a few coal plants, but China, India, and other growing nations are building them at a far faster pace than we shutter them. It is estimated that more than a thousand coal-fueled utilities are under construction or planned in other countries. They do not have the ability to fund costly nuclear plants and do not have the blessing of fracking, so they go with old reliable coal.

Committed environmentalists want to block the sale of plentiful American coal to foreigners, as if that would stop them from using coal. We have the largest coal stock in the world, but it is a common commodity, so restricting sales only hurts our economy; it has negligible impact on energy production in the rest of the world.

A new documentary, A Will for the Woods,highlights a growing trend in what is known as “green burials.” The film follows the journey of Clark Wang, a man suffering from Non-Hodgkin’s Lymphoma. Clark aims to make his burial as non-intrusive to the environment as possible, and makes arrangements with the Green Burial Council to do so.

The Green Burial Council was launched with the help of PERC Enviropreneur Institute alum Joe Sehee. It is a non-profit, volunteer-driven organization that aims to expand the availability of green burials by certifying funeral operations to meet standards of minimum resource use. Certification standards are determined by a private group of lawyers, environmentalists, and scientists, and are voluntary to obtain. Demand for more natural burials has created the market for this green solution.

Traditional funeral services in the United States are resource intensive; burial plots are created by clearing an extensive area of land, and caskets and mausoleums use large amounts of highly valuable stone and wood. The Green Burial Council recognizes these costs and has been working to promote green burials across the United States. Green burials reduce the environmental impact that traditional funerals typically impose. They are simple ceremonies that take place in nature reserves and use native plants or field stones as grave markers. Now with more than 300 approved providers, green burials are on the rise.

The White House continues its aggressive economic stimulus program by issuing ever more stringent controls over energy use, which it claims will bring great benefits to the nation for years. Unfortunately, the benefits are largely illusory and the costs are significant.

How is this economic wonder achieved? The cost side is relatively straightforward. Microwave ovens will be more expensive as they are retooled to use less power while sitting unused. DOE estimates manufacturers will lose about 7% of industry net present value due to higher costs and lost sales (the $96.6 million) — a substantial loss.

According to DOE, however, that loss in industry value is swamped by the benefits. Over 30 years, microwave users will use less electricity, so 38.11 million metric tons less of CO2 will be emitted (other emissions will also drop, but that is not where DOE says the money is).

The Social Cost of Carbon (“SCC”) from reduced CO2 emission is worth as much as $3.615 billion (at a minimum, it is $255 million, still much higher than cost). SCC was developed by an “interagency process” that determined that the value of a ton of CO2 should, as of 2013, be somewhere between $12.6 and $119.1 per ton, up substantially from the old 2010 SCC values of only $6.2 to $78.4 per ton.

This regulation drew particular attention as it is apparently the first to employ the new higher value of CO2 emissions. The problem is that the “value” of CO2 non-emissions is not based on anything other than the imagination of bureaucrats. Because there is no market for such emissions, no price exists except in the minds of the central planners who have divined a “price” from speculation. The real and measurable cost will be higher-priced microwaves (which will primarily impact lower-income people) and the attendant higher costs and lower sales incurred by industry.

Few issues are more partisan than environmental policy. On the left, capitalism is seen as the catalyst for environmental problems, ranging from uncontrolled local development to global climate change. Economic benefits are assumed to always come with environmental costs. And for every such cost there is a political solution that calls for more government spending, more regulation, more taxation, or all three. In short, liberty is viewed as the enemy of the environment.

On the right, green politics is seen as fueling the growth of an already powerful leviathan that weighs heavily on a struggling economy. Whether it is local land use controls, national energy policies, or international trade restrictions, environmental regulations hamstring free enterprise, cost jobs, and stifle entrepreneurship. In short, the environment is considered the enemy of liberty, property rights, and economic prosperity.

PERC’s “Environment and Liberty Campaign” is shining light on another path where liberty works with the environment. The campaign will fund a coordinated set of research, education, and outreach programs that will equip entrepreneurs in business, law, and policy to improve environmental stewardship by deepening and expanding the property rights foundation for liberty.

Your investment will help launch this next generation of solutions, spread the success stories of free market environmentalism, and train policy makers and resource practitioners to apply business principles to solve environmental challenges. Become an anchor investor in the future of environment and liberty today. To learn more, visit the campaign website.

Economic research has long been subject to a pitfall: it lacks a laboratory in which to carry out simple experiments. Unlike sciences such as physics or chemistry, economic data are messy, imperfectly measured, and affected by any number of unknown variables. This makes it difficult to understand how humans and markets actually work.

The field of experimental economics attempts to address these challenges. Using controlled laboratory experiments and computer programs, researchers are able to take a more scientific approach to understand human behavior, and they are often uncovering new revelations about the way human societies work. Long-time friend of PERC and former board member Vernon Smith won the 2002 Nobel Prize in economics for his experimental economics research, which sought to go beyond mathematical abstractions and understand the role human institutions play in creating social rules and order.

Bart Wilson is a colleague and coauthor of Vernon Smith at the Economic Science Institute at Chapman University and a 2013 PERC Lone Mountain Fellow. This week, Bart visited PERC to explore how societies form rules and order. He even tested a laboratory experiment on the PERC staff to further demonstrate how human institutions emerge and how those institutions respond to sudden and dramatic changes. The experiment reveals something about how societies avoid collapse.

Here’s how it worked: Each PERC participant was provided a laptop and given instructions on how to navigate a virtual world resembling early human agricultural settlements. Players must harvest renewable resources—either green or yellow patches—to maintain a health rating. Each colored patch has a numerical value. The more health earned throughout the game, the more reward paid at the end of the experiment. The game is divided into “weeks” in which players can harvest and consume one resource per week.

Consuming the patches, however, has one caveat: Your health is improved if you consume an equal value of each color—for example, 6 green units and 6 yellow units. But because players can only consume one patch each period, they must learn to cooperate with each other to consume equal amounts of both colors in each period. To do so, players learn to trade units to other players.

Not only must players learn to cooperate throughout the experiment, they must also face the consequences of an ecological shock. Partway through the game, an unexpected drought hits the resources for one subset of the players. Doing so allows the researchers to understand how the newly created institution of trading is affected by the shock. In addition to the shock, strangers begin to appear on players’ screen. Unknown to the participants, the players were initially divided into two worlds, where they established separate informal institutions for harvesting their resources. Now, because of the drought, they are forced to interact in their search for available resources.

By running multiple experiments of this sort, Bart and his colleague Erik Kimbrough find that whether societies collapse depends on the extent to which they cooperate and trade with each other, and this cooperation is highly dependent upon local circumstances. However, once the informal institutions for cooperation emerge within a group, cooperation between separate groups becomes difficult. When the two isolated groups are allowed to interact during a time of resource scarcity, the “other” group is treated with suspicion and a lack of cooperation.

The experiment, published recently in the journal Ecological Economics, reveals how sensitive institutional adaptation is to its social and ecological context. “Not only are informal rules of property and exchange path-dependent, but they are also particularly fragile when stressed by the sentiments of tribal solidarity that impulsively surface in the face of ecological distress,” the authors write. “Whether collective action in response to socio-ecological change is fraught with conflict or leads to new forms of cooperation may depend crucially on the context in which it arises.” It’s a reminder that our deeply rooted and context-specific human institutions must be able to adapt in an ever-changing world.

For more on Bart’s work, check out his PERC Q&A from 2011 on experimental economics and property rights.

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Founded 30 years ago in Bozeman, Montana, PERC—the Property and Environment Research Center—is the nation’s oldest and largest institute dedicated to improving environmental quality through property rights and markets.

The goal of PERC’s programs is to fully realize the vision of establishing “PERC University,” where scholars, students, policy makers, and others convene to expand the applications of free market environmentalism.

PERC's fellowships share a common goal of exposing new scholars, students, journalists, and policy makers to free market environmentalism, as well as enable scholars already familiar with FME to explore new applications.